Conviviality, owner of the Bargain Booze and Wine Rack chains, is seeking to raise more than £50m in an emergency rights issue next week after a series of catastrophic financial errors that have resulted in the suspension of its shares.
On Friday the drinks retailer, which also operates the wholesaler Matthew Clark, told the City it was considering asking shareholders to inject fresh funds into the business. Investors were receptive to bailing out the company, a well-placed source told the Guardian, with the company looking to raise at least £50m.
Shares in the company, run by its chief executive, Diana Hunter, were suspended on Wednesday after two profit warnings in the space of a week wiped more than 60% off its stock market value.
The shares were suspended at 101p after a precipitous fall that began last week when it blamed a shock profit warning on an arithmetic error made by a member of its finance team.
The state of UK retail’s ill-health
Retailers that have gone bust 2017-18
Toys R Us: 180 stores employing 3,000 staff, collapsed 28 February. Owes £15m in VAT, due by 1 March.
Maplin: 200 electronics and gadget stores, founded 1972, also failed on 28 February.
Warren Evans: bedmaker went into administration earlier in February.
East: fashion brand with nearly 50 outlets folded in January.
Juice Corp: business behind brands including Elizabeth Emanuel and Joe Bloggs went under in January.
Multiyork: furniture chain with 50 stores went into administration in November.
Feather & Black: bedroom furniture and bedding specialist with 25 outlets collapsed in November.
Retailers under pressure
New Look has debts of more than £1bn and has lost some of its credit insurance cover, which protects suppliers if a retailer goes bust. In the 10 months to Christmas, sales fell 11% and losses hit £123m. The company intends to close 60 stores and change its fashion ranges, but faces a struggle to win back young shoppers.
House of Fraser’s Chinese owner, Sanpower, had to stump up £25m to see the store through Christmas and its debt is rated as junk. The retailer is attempting to reduce the size of its stores by 30% and has asked landlords to cut rents.
Debenhams, a 178-store chain that is more than 200 years old, is axing one in four of its managers and considering closures to cut costs. It has warned that profits have been hit by lower than expected sales, with profit margins also down as a result of having to cut prices to match rivals.
Photograph: Tony Margiocchi / Barcroft Images/Barcroft Media
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At that time the retailer said profits would be 20% lower than the £70m expected by the City, with £5.2m of the £14m hole that had opened up in its forecast down to a spreadsheet error, while the remainder was a reflection of weakening profit margins.
Conviviality is a major player in the UK drinks industry, with sales of £1.6bn in 2017. It supplies more than 700 off-licences – a mix of company-run and franchise stores. Its wholesale arm, which includes the Matthew Clark and Bibendum businesses, is the market leader with 23,000 pubs and restaurant customers including the JD Wetherspoon chain.
The blow to management credibility dealt by last week’s profit alert was compounded by this week’s admission that it had not budgeted for a £30m tax bill that falls due at the end of March and as a result was in urgent talks with its banks about funding.
The tale of woe means Conviviality now has a market value of just £185.5m compared with £567.3m before the first unscheduled trading update. It has also cancelled its interim dividend to save £8.2m.
In a statement Conviviality said it had asked accountants from PwC to lead a “review of the business and its future finding requirements” and that its customers and suppliers “remain supportive” of the company.
It also added: “The company has engaged with HM Revenues and Customs regarding the £30m payment due on the 29 March 2018. HMRC has been receptive to our needs and these discussions continue.”